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  • Estimating a depreciating asset's effective life

    You work out the effective life of a depreciating asset as at the time it is first used or installed ready for use for any purpose. The estimate should take into account:

    • how you expect to use the asset
    • what rate of wear and tear you would reasonably expect from that use assuming the asset is maintained in reasonably good order and condition
    • how long the asset could, in these circumstances, be used to produce income (irrespective of who used it)
    • any proposal to scrap or abandon the asset that would otherwise cut short its use for income producing purposes.

    In making your estimate, you need to take into account relevant factors such as the manufacturer's specifications, independent engineering information and your particular experience with similar assets.

    If you choose to make your own estimate of effective life, you need to indicate this at the appropriate capital allowances labels in your tax return if those labels appear in your tax return, they may not.

    Altering the effective life you are using

    You can choose to recalculate the effective life you are using for an income year if your circumstances of use change and the effective life you have been using is no longer accurate.

    You can do this irrespective of whether you are using our estimate or your own and you can recalculate each time your circumstances change. In addition, if you make an improvement to an asset that results in its cost increasing by 10% or more in an income year, you may be obliged to recalculate the effective life.

    See also:

    Calculating the decline in value of assets in a low-value pool

    The decline in value of certain assets with a cost or opening adjustable value of less than $1,000 can be calculated through a low-value pool at a diminishing value rate of 37.5%.

    See also:

      Last modified: 19 Jul 2019QC 16297